Transitional issues in Goods and Services Tax

Constitutional amendment bill for levying Goods and services tax has already been passed in Lok Sabha. Had it not been for the rigid stand of the opposition the same would have been passed in the monsoon session of the parliament held in august 2015. Past apart, with the current business mood along with support from the states and sheer determination of the central government to bring the revolutionary tax reform at the earliest date possible, it seems that the current parliament logjam is not there to be subsisting for too long. Once the constitution bill is passed, lot of cleanup action including the future optimization plans has to be worked around to re-engineer the entire business model in accordance with the new tax regime.

If tremendous efforts are required to completely plan, implement and execute the new business models under the strictures of the GST law, then the major tranche of those efforts will have to be devoted in ensuring smooth “transition” into the new regime. Current article is written to bring about an awareness in respect of various transitional aspects that needs to be taken care of by the business entities to ensure smooth transition into the new world of taxation. In this regard, major transitional issues in the GST regime are listed below:

Obtaining registration certificate;
Transition of CENVAT or input tax credits;
Taxation on overlapping transactions;
Taxation in case of transactions in the nature of continuous supply of goods or services;
Goods in transit or pending approval;
Branch stock or asset transfers;
Price restriction, monitoring and revision;
Sales made during current regime and sales return in GST regime;
Exempt goods returned after sale;
Treatment for goods and services currently taxed at lower rate;
Goods lying with job-worker premises/agents;
Treatment for units covered under industrial incentives/exemptions;
Transition entries in the books of accounts;
Treatment for transactions covered under Purchase tax/reverse charge;
Pending refund claims;
Filing of returns, completion of assessments, audits, appeals etc.

This article focuses on the transitional issues that shall be faced in respect of ‘Obtaining registration under GST’ and the immediate action that needs to be taken by the business entities to ensure smooth registration process.

Transitional issues in registration under GST

Transitional provisions are required to provide the process for conveniently obtaining a new registration certificate from the GST authorities of both center and state and to surrender an existing registration certificates pertaining to various taxes subsumed. For smooth transition to registration requirements, following is expected:

a. Registration process is expected to be online wherein; registration number will be allotted immediately on making an online application without submission of any documents or proofs and without any physical inspection or verification by the tax authorities. However, for security reasons and to ascertain authentication of the application, it is expected that the online application may need to be mandatorily signed with the digital signature of the authorized person.

b. Time-limit is expected to be pre-fixed for submission of various proofs, documents etc. supporting the registration application to be submitted at a later date. Also, verification/inspection may be done if any required by the tax authorities at a later date.

c. Registration certificate is expected to be a PAN based number with specific codes for each state.

d. Every assesse may need to obtain one central registration certificate from CGST authorities and multiple state registration certificates from SGST authorities.

e. SGST registration certificate may be required from all states GST authorities where the business entity is having a permanent establishment in the form of registered office, factory, branch, depot, warehouse or any other fixed or permanent establishment.

f. Single centralized registration is expected to be issued covering all the units, branches of the assesse within that state and the jurisdiction shall be decided based on the principal place of business within that state.

g. A nominal fee may be charged for grant of registration certificate in the GST regime to recover the administrative costs of physical inspection etc.

h. All the existing registration certificates are expected to be continued for the purpose of filing of periodical returns, payment of dues, completion of assessments/appeals/audit, refunds, generation of requisite forms etc. The same are expected to be phased out over a period of time. Separate application for surrendering the old registration certificates may not be provided for.

i. No separate registration certificate may be required under the IGST act. The registrations under CGST & SGST are expected to be equally applicable for all the compliance requirements under IGST.

j. No registration is the turnover during the previous financial year is less than Rs.25 lakhs/-

k. Registrations under various countries.

Immediate action to be taken:

a. Since, a need for re-engineering of entire supply chain would be required in the GST regime, therefore in case a branch, warehouse, depot established at other states mainly for obtaining the tax benefits under the current VAT/CST regime, then a consequent GST registration may also be required to be taken for the said premises leading to un-necessary compliance requirements and costs. Action must be taken immediately to identify such premises and the process to shut the same to avoid registration of the same in GST regime.

b. Applying for and obtaining the digital signature certificate in the name of the authorized representative of the business entity.

c. Setting right the issues if any faced with the current PAN no. obtained from the income tax authorities.

Group Registration concept - Best practices internationally

There is concept of Group registration that is prevalent in few of the world’s major economies; such concept of group registration if brought in India can have following benefits:

a. Reduction in the compliance costs

b. Simplified administration for supplies between the group companies;

c. One GST return & one payment for the entire group. This is especially useful for businesses with a centralized accounting function.

d. Cash flow benefits in the form of real cash savings for taxable supplies made between the groups especially for the supplies made to the partially exempt group members.

Summary of the group registration concept as is prevalent in few developed countries is tabulated below for ease of reference:

United Kingdom

Australia

New Zealand

Canada

Corporate bodies that are under “common

Control” and are established or have a fixed establishment in the United Kingdom may apply to register as a VAT group.

A VAT group is treated as a single taxable person. The group members share a single VAT number and submit a single VAT return.

No VAT is charged on supplies made between group members.

Group members are jointly and severally liable for all VAT liabilities.

Subject to certain requirements, two or more entities that are closely related may form a GST group.

The effect of GST grouping is to treat the group members as a single entity for certain purposes. In general, all GST liabilities and input tax credit entitlements for group members are attributed to a representative member of the group, and the group submits a single GST return (incorporated as part of the Business Activity Statement;

The representative member of the group must be an Australian resident. However, nonresidents may be included in a GST group as members.

Transactions between group members

Are not considered taxable for GST purposes and consequently are effectively ignored.

When the legal entities are considered as “Closely related” is defined under the act.

A group must appoint a representative member. Group members

Making supplies outside the group must issue tax invoices.

The representative group member must

account for GST with respect to all group members’ taxable

activities and file returns. Group members must adopt the same tax periods and accounting basis for GST purposes.

Group members are also jointly and severally liable for all

GST liabilities.

Transactions between group members are not generally liable to

GST. This measure applies on the condition that the supply is made to a group member that would have been entitled to input tax recovery if the supplier had not been a member of the group.

Group registration is allowed for corporations

or other taxable persons that are “under common control.”

Although, GST/HST group registration is not permitted in Canada.

Legal entities that are “closely connected” must register for GST/

HST individually.

However, “closely related” corporations and partnerships may

elect to deem supplies made between members of the group as being made for no consideration if the members are engaged exclusively in making taxable and zero-rated supplies.

This provision effectively makes sales between group members subject to

the zero rate.

When the legal entities are considered as “Closely Connected” is defined under the act.

This article has been focused only on the transitional issues involved in the registration aspect of the GST. Detailed discussion/analysis on the transitional issues in case of other areas as listed above shall be followed in the subsequent articles to be posted in this series.

By CA Ravi Kumar Somani
(For feedback or queries write to ravi.somani03@gmail.com)